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Area Engineering Firms Soaking Up Water Infrastructure Projects

Amid global warming and changing weather patterns, water is becoming increasingly scarce and that could trigger a flood of new business for some local companies.

Already, water infrastructure engineering firms such as Tetra Tech Inc. and Aecom Technology Corp. are seeing new orders trickle in, and they are gearing up for further increases in demand for their products and services.

“When water projects get rolling, they normally come to us first,” said Jim Pagenkopf, Tetra Tech’s senior vice president in charge of water programs. “And we’ve seen a big increase in demand as water becomes more and more scarce and as more and more local governments are seeing the need for improving existing infrastructure.”

The Pasadena-based engineering and consulting firm is involved in several water recycling projects across the country, as well as one of the largest desalination plants in the U.S. in Huntington Beach. The $250 million project, announced last year, would provide 50 million gallons of clean drinking water per day.

“Water has long been subsidized by the government, so we’ve all been lulled into thinking that there’s an infinite supply of cheap, clean water available,” Pagenkopf said. “That’s hardly the case.”

Analyst Ryan Conners, from West Conshohocken, Pa.-based investment firm Boenning & Scattergood, said climate change is making water projects more important, especially in dry regions of the country. In a research report last week, he said companies in that field are in a good position to benefit as a result of the changing climate.

“Water systems are already acting to shore up their infrastructure to cope with these changes, creating near-term opportunities,” Conners said.

The opportunities may only increase, he said, amid rapid population growth in dry regions of the country, such as the Southwest. The area has ranked near the top in population growth nationally and at the bottom in annual precipitation.

“Despite growing concern among the press, investment community and government that the demand for water is rapidly outstripping its supply, the driest regions of the United States continue to be the country’s fastest growing,” Conners said.

Water recycling, in which filtered waste water is put back in the system, holds promise in the coming years, experts say, and could boost companies such as Tetra Tech that design and engineer those specialized facilities. But the technology has been slow to be implemented due to opposition from the public.

Still, the increased demand for Tetra Tech’s services has led investors to take notice sending its shares up 20 percent so far this year to close at $20.42 on April 17.

“We can’t even fill the positions we need today, and demand is only going to increase,” Pagenkopf said.

In 2006, voters passed more than $10 billion in state bonds for California to update water facilities. Another $12 billion for state water projects is being proposed for the 2008 and 2010 ballots. And California is not alone: Pennsylvania recently allocated $72 million in low-interest loans and grants to raise capital for water projects. In November of 2007, Congress also approved $23 billion in federal funding for water resource projects nationally.

Like Tetra Tech, Los Angeles-based Aecom, which provides technical and engineering services for water infrastructure projects, is seeing business increase as well. The company has acquired three water infrastructure firms this year alone and its stock has gained 16 percent during the period to close at $26.81 on April 17.

Meanwhile, Pasadena-based Ameron International Corp., which makes large-diameter pipes for water transmission, has seen its stock price jump 22 percent since the beginning of this year.

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